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By Nathan R. Olansen

As you might expect, I receive a ton of questions every day about how the new tax law is going to affect individual, business, trust and estate planning. And, as you might expect, my answer is always quite lawyerly - it depends. It depends on your income level and the value of your assets, it depends on your age, it depends on how many children you have, it depends on whether you own rental property, etc. So, in an effort to provide you with a basic framework within which you might be able to analyze your own situation, this post will be the first in a series that will outline the major individual, business, and estate tax provisions of the Tax Cuts and Jobs Act.

General Overview

The “Tax Cuts and Jobs Act” has largely taken shape at a breakneck speed over a two-month period, with the House passing its version of the bill on November 16, 2017, and the Senate passing its version on December 2, 2017. The two versions were then reconciled into a single piece of legislation which, due to a procedural complication, underwent a number of small revisions prior to final passage by the Senate and House. Among the few last-minute revisions to the bill was a new title: “An Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018.” This article refers to the law by its commonly used name: “Tax Cuts and Job Act.”

This comprehensive tax overhaul dramatically changes the rules governing the taxation of individual taxpayers for tax years beginning before 2026, providing new income tax rates and brackets, increasing the standard deduction, suspending personal deductions, increasing the child tax credit, limiting the state and local tax deduction, and temporarily reducing the medical expense threshold, among many other changes. The legislation also provides a new deduction for non-corporate taxpayers with qualified business income from pass-throughs. Remember, the individual provisions of the Tax Cuts and Job Act sunset on December 31, 2025, reverting back to the law as it would have existed had the Tax Cuts and Job Act not been passed.

For businesses, the legislation permanently reduces the corporate tax rate to 21%, repeals the corporate alternative minimum tax, imposes new limits on business interest deductions, and makes a number of changes involving expensing and depreciation. The legislation also makes significant changes to the tax treatment of foreign income and taxpayers, including the exemption from U.S. tax for certain foreign income and the deemed repatriation of off-shore income.

On the estate, gift and generation skipping transfer tax side, the Tax Cuts and Job Act significantly increases the exemption amount while holding onto the recently created estate tax portability provisions that have proved increasingly popular and useful.

Income Tax Rates and Brackets

For tax years beginning after Dec. 31, 2017 and before Jan. 1, 2026, seven tax rates apply for individuals: 10%, 12%, 22%, 24%, 32%, 35%, and 37%. The Act also provides four tax rates for estates and trusts: 10%, 24%, 35%, and 37%.

Here are several tables detailing how your individual income tax rate is calculated based on whether you are married, single, head of household, or an estate or trust. One thing you will notice is that there is no longer a marriage penalty built into the run up in tax brackets (except for the top tax bracket). In other words, the income levels at which the brackets change rates for married individuals is exactly 2x the single person income tax rate. All tax brackets will be indexed annually by the federal Cost of Living Adjustment (COLA). The estate and trust income tax brackets continue to be incredibly compressed, imposing high levels of tax at nominal income tax rates.

Remember, there are no more corporate tax tables (this is a permanent change), corporations are now taxed at a flat 21%. The permanent reduction to 21% also includes the tax imposed on personal service corporations (e.g., law firms, CPA firms, architecture firms, engineering firms, etc.). So for those businesses, maybe being a C corporation is no longer such a bad idea.

MARRIED INDIVIDUALS FILING JOINT and SURVIVING SPOUSES:

If taxable income is:

 

The tax is:

 

 

 

Not over $19,050

 

10% of taxable income

Over $19,050 but not over $77,400

 

$1,905 plus 12% of the excess over $19,050

Over $77,400 but not over $165,000

 

$8,907 plus 22% of the excess over $77,400

Over $165,000 but not over $315,000

 

$28,179 plus 24% of the excess over $165,000

Over $315,000 but not over $400,000

 

$64,179 plus 32% of the excess over $315,000

Over $400,000 but not over $600,000

 

$91,379 plus 35% of the excess over $400,000

Over $600,000

 

$161,379 plus 37% of the excess over $600,000

 

SINGLE INDIVIDUALS: 

If taxable income is:

 

The tax is:

 

 

 

Not over $9,525

 

10% of taxable income

Over $9,525 but not over $38,700

 

$952.50 plus 12% of the excess over $9,525

Over $38,700 but not over $82,50

 

$4,453.50 plus 22% of the excess over $38,700

Over $82,500 but not over $157,500

 

$14,089.50 plus 24% of the excess over $82,500

Over $157,500 but not over $200,000

 

$32,089.50 plus 32% of the excess over $157,000

Over $200,000 but not over $500,000

 

$45,689.50 plus 35% of the excess over $200,000

Over $500,000

 

$150,689.50 plus 37% of the excess over $500,000

 

HEAD OF HOUSEHOLD:

If taxable income is:

 

The tax is:

 

 

 

Not over $13,600

 

10% of taxable income

Over $13,600 but not over $51,800

 

$1,360 plus 12% of the excess over $13,600

Over $51,800 but not over $82,500

 

$5,944 plus 22% of the excess over $51,800

Over $82,500 but not over $157,500

 

$12,698 plus 24% of the excess over $82,500

Over $157,500 but not over $200,000

 

$30,698 plus 32% of the excess over $157,500

Over $200,000 but not over $500,000

 

$44,298 plus 35% of the excess over $200,000

Over $500,000

 

$149,298 plus 37% of the excess over $500,000

 

MARRIED FILING SEPARATELY:

If taxable income is:

 

The tax is:

     

Not over $9,525

 

10% of taxable income

Over $9,525 but not over $38,700

 

$952.50 plus 12% of the excess over $9,525

Over $38,700 but not over $82,500

 

$4,453.50 plus 22% of the excess over $38,700

Over $82,500 but not over $157,500

 

$14,089.50 plus 24% of the excess over $82,500

Over $157,500 but not over $200,000

 

$32,089.50 plus 32% of the excess over $157,500

Over $200,000 but not over $300,000

 

$45,689.50 plus 35% of the excess over $200,000

Over $300,000

 

$80,689.50 plus 37% of the excess over $300,000

 

ESTATES AND TRUSTS:

If taxable income is:

 

The tax is:

 

 

 

Not over $2,550

 

10% of taxable income

Over $2,550 but not over $9,150

 

$255 plus 24% of the excess over $2,550

Over $9,150 but not over $12,500

 

$1,839 plus 35% of the excess over $9,150

Over $12,500

 

$3,011.50 plus 37% of the excess over $12,500

 

More to come next time...